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Appendix B: Fiscal Reporting Standards
Budget estimates in the 2000-01 Budget are presented on both a Government Finance Statistics (GFS) and an Australian Accounting Standard 31 Financial Reporting by Governments (AAS31) basis.
Box B1: GFS and AAS31 Reporting Frameworks
The GFS reporting framework (refer to Statement 8) is a specialised statistical system designed to support economic analysis of the public sector. The framework allows comprehensive assessments to be made of the economic impact of government. The GFS framework is consistent with international statistical standards.
GFS statistics have previously been presented on a cash basis. The first presentation by the Australian Bureau of Statistics of public finance statistics on an accrual GFS accounting basis was contained in the 1999-2000 issue of Government Financial Estimates, Australia (Cat. No. 5501.0), released in April 2000.6
AAS31 (Statement 4) requires governments to prepare accrual-based general purpose financial reports, including in relation to the assets they control, any liabilities incurred, and their revenues and expenses. This reporting is intended to provide a consolidated overview of the financial performance and position of government, including in the area of financing and investing activities. Users are not able to obtain this overview by analysing all of the individual financial reports of the many entities controlled by Commonwealth, State and Territory governments due to the existence of intra-government transactions.
Under AAS31, governments must prepare an operating statement (also known as a statement of revenues and expenses, or profit and loss statement), a statement of financial position (or balance sheet) and a statement of cash flows.
There is a general consistency of treatment between the GFS and AAS31 standards. Definitions of the scope of the public sector agree in almost all cases, as does the segmentation of the public sector into subsectors.
There are significant differences, however, in the treatment of some items. In particular, revaluations of financial and non-financial assets and liabilities are classified differently under AAS31 and GFS standards. Such transactions include, for example, gains or losses from foreign exchange rate variations.
Under AAS31 reporting, valuation changes may affect revenues or expenses. However, under GFS reporting revaluations are not considered to be transactions (that is, they are considered to be other economic flows) and accordingly do not form part of revenues or expenses. Moreover, most revaluations are not taken into account in the calculation of the GFS net operating balance.
Other differences between the two standards include the treatment of items such as provisions or allowances for doubtful debts, extraordinary items and finance leases.
In addition, since MYEFO, the Australian Bureau of Statistics (ABS) has revised the Australian GFS treatment of net cash settlement payments related to some financial derivatives (swaps and forward rate agreements), which has introduced another classification difference between the two standards.
The ABS change to the GFS classification is in accordance with revisions to the international statistical standards System of National Accounts 1993 (SNA93) and the IMF Balance of Payments Manual (BPM5) adopted by the Inter-Secretariat Working Group on National Accounts and the IMF Committee on Balance of Payments Statistics.
Prior to these revisions, both SNA93 and BPM5 recommended that net cash settlement payments associated with these financial derivatives be recorded as property income (that is, interest revenues or interest expenses).
However, the IMF now considers this treatment to be inconsistent with the SNA93 definition of property income and has reclassified these transactions as financing items. Therefore, net cash settlement payments associated with these financial derivatives are no longer GFS revenues or expenses. The IMF has reflected this revised treatment of financial derivatives in the current draft of the second edition of its Manual on Government Finance Statistics. This revision was also ratified by the United Nations Statistical Commission at its annual meeting in early March 2000.
Nevertheless, these transactions continue to be treated as operating transactions (that is, as revenues and expenses) under Australian Accounting Standards.
Table B1 reconciles the GFS and AAS31 revenue and expenses estimates.
Table B1: Reconciliation of GFS and AAS31 Revenue
and Expenses Estimates
A further issue in regard to the reporting standards is that the Commonwealth revenue and expenses estimates in Budget Statements 1, 4, 5, 6 and 8 (except for Appendix C) do not include GST collections and equivalent payments to the States. Under the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations (the IGA), all GST revenue is appropriated to the States and Territories.
While for constitutional reasons the GST is levied by the Commonwealth, and can therefore be technically considered a Commonwealth revenue under the reporting standards, the clear policy intent of the IGA is that it is a State tax collected by the Commonwealth in an agency capacity. Estimates of GST revenues are provided in Table B1. Further details are provided in Budget Paper No. 3 - Federal Financial Relations.
Table B2 reconciles the accounting net operating result to the GFS net operating balance and the fiscal balance (GFS net lending). The fiscal balance measures the extent to which the Government is adding to or drawing from the national savings pool and contributing directly to the current account deficit.
Table B2: Reconciliation of AAS31 Net Operating Result
and Fiscal Balance Estimates
The reconciliation in Table B2 can be divided into two parts. The first part shows classification differences between the AAS31 operating result before extraordinary items and the GFS net operating balance. As discussed above, these differences relate mainly to the treatment of revaluations of financial and non-financial assets and liabilities under the two standards. Major revaluations include: writedowns of bad and doubtful debts (excluding those that are mutually agreed); changes in the valuation of superannuation liabilities; interest swap arrangements; cost of asset sales; and foreign exchange gains and losses.
The second part of the reconciliation shows the adjustment for net capital investment required to derive the fiscal balance from the GFS net operating balance. Net capital investment is measured as net purchases of property, plant and equipment, plus net investment in other non-financial assets less depreciation.
6 The ABS information paper titled Accruals-based Government Finance Statistics 2000 (Cat. No. 5517.0), released in March 2000, outlines the conceptual changes to the GFS framework and the changed format for GFS tables.